Innovair Corporation v. Factory Direct Sales and Consultant, Inc.

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
INNOVAIR CORPORATION,
Plaintiff & Counter-Defendant,
v.
FACTORY DIRECT SALES AND
CONSULTANT, INC.,
Defendant, Counterclaimant &
Third-Party Plaintiff,
v.
INNOVAIR SOLUTIONS,
Third-Party Defendant.
Civil No. 23-1079(GMM-GLS)
OPINION AND ORDER
Before the Court is the Report and Recommendation issued by
Magistrate Judge Giselle López-Soler (“Magistrate Judge López-
Soler”) (Docket No. 117), recommending denial of Defendant Factory
Direct Sales and Consultant, Inc.’s (“FDSC”) request for a
preliminary injunction pursuant to the Puerto Rico Dealer’s Act,
P.R. Laws Ann. tit. 10 §§ 278 et seq. (“Law 75”). See Docket Nos.
8, 65. Having reviewed the full briefing and the evidentiary record
de novo, the Court addresses Defendant’s objections, ADOPTS the
Report and Recommendation WITH MODIFICATIONS, and DENIES FDSC’s
request for a preliminary injunction.
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I. FACTUAL AND PROCEDURAL BACKGROUND
For concision, the Court incorporates by reference the
factual and procedural background set forth in the Court’s previous
Opinion and Order (Docket No. 116), in which the Court granted
Plaintiff Innovair Corporation’s and Third-Party Defendant
Innovair Solutions’ (collectively, “Innovair”) Partial Motion to
Dismiss Pursuant to Fed. R. Civ. 12(b)(6), (Docket No. 72).
After holding a four-day evidentiary hearing - and upon
examining the documentary evidence and the parties’ briefs -
Magistrate López-Soler produced a Report and Recommendation
denying FDSC’s request for a preliminary injunction pursuant to
Law 75. (Docket No. 117).
FDSC timely filed an Objection to Report and Recommendation
(ECF No. 117) (FDSC’s “Objection”) on August 13, 2024. (Docket No.
118). In its Objection, FDSC disputes four factual findings, (Id.
at 5-10), and challenges the legal analysis espoused for the denial
the preliminary injunction, (Id. at 10-25).
Innovair filed a Response in Opposition to FDSC’s “Objection
to Report and Recommendation (ECF No. 117)” (Innovair’s
“Response”) on September 6, 2024. (Docket No. 126). FDSC replied
on September 23, 2024, with a Reply to Innovair’s Response in
Opposition to FDSC’s Objection to Report and Recommendation (ECF
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No. 126). (Docket No. 131). Innovair then responded on October 15,
2024 with a Surreply to FDSC’s Objections to R&R. (Docket No. 134).
With the benefit of a complete evidentiary record and fully
briefed objections, responses, and replies, the Court proceeds to
evaluate the matter de novo.
II. LEGAL STANDARD
District courts may refer a pending motion to a magistrate
judge for a report and recommendation. 28 U.S.C. § 636(b)(1)(B);
Fed. R. Civ. P. 72(b). In turn, adversely impacted parties may
“serve and file specific written objections to the proposed
findings and recommendations” within fourteen days of receipt of
a magistrate judge’s report and recommendation.” 28 U.S.C. §
636(b)(1)(C).
Upon receipt of timely objections, the Court conducts de novo
review of those portions of the Report and Recommendation to which
specific objections have been made. Bonefont–Igaravidez v. Int’l
Shipping Corp., 659 F.3d 120, 123 (1st Cir. 2011); see also United
States v. Valencia-Copete, 792 F.2d 4, 6 (1st Cir. 1986). In its
review, the Court may “accept, reject, or modify, in whole or in
part, the findings or recommendations made by the magistrate
judge.” 28 U.S.C. § 636(b)(1)(C).
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As for findings of fact and determinations of law included
within the magistrate’s report and recommendation and for which no
objections were raised, a district court may accept these portions
of a magistrate judge’s report and recommendation, so long as the
Court is satisfied that they do not contain a plain error. See
Rey-Cruz v. Forensic Sci. Inst., 794 F. Supp. 2d 329, 332 (D.P.R.
2011) (“The Court, in order to accept unopposed portions of the
Magistrate Judge’s Report and Recommendation, needs only satisfy
itself that there is no ‘plain error’ on the face of the record.”);
Templeman v. Chris Craft Corp., 770 F.2d 245, 247 (1st Cir.
1985)(“Absent objection by the plaintiffs, the district court had
a right to assume that plaintiffs agreed to the magistrate’s
recommendation.”). “[A] party’s failure to assert a specific
objection to a report and recommendation irretrievably waives any
right to review by the district court and the court of appeals.”
Santiago v. Canon U.S.A., Inc., 138 F.3d 1, 4 (1st Cir. 1998); see
also Lewry v. Town of Standish, 984 F.2d 25, 27 (1st Cir. 1993)
(stating that an “[o]bjection to a magistrate’s report preserves
only those objections that are specified”).
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III. APPLICABLE LAW AND ANALYSIS
A. Findings of Fact
The parties submitted stipulated facts. (Docket No. 79). In
addition, Magistrate López-Soler made twenty-eight findings of
fact, (Docket No. 117 at 3-6), of which FDSC challenges facts 4,
16, 22, and 26. (Docket No. 118 at 5-10). FDSC “respectfully
requests the District Judge to accept” findings of fact 1-3, 5-
15, 17-21, 23-25, and 27-28 “without modification.” (Id. at 5).
Upon this Court’s review - and taking into account the
parties’ lack of objections as to these factual findings – the
Court finds that Magistrate Judge López-Soler’s Report and
Recommendation does not contain plain error as to findings of fact
1-3, 5-15, 17-21, 23-25, and 27-28. The Court hereby ADOPTS these
factual findings without modification and now moves to examine the
objected factual findings.
FDSC argues that the four objected findings of fact – numbers
4, 16, 22, and 26 - are erroneous because “although the evidence
in record does support many of the R&R’s findings, it does not
support the interpretation given to the direct sales method that
was agreed between the parties, nor to FDSC’s role and rights in
those types of sales.” (Id. at 4). “Most importantly,” FDSC
contends, “the R&R left out the fact that FDSC’s relationship with
Roger Electric and with 90% of its remaining clients was not
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limited to, nor part of, the direct sales approach.” (Id.). In its
Objection, FDSC further indicates that Magistrate López-Soler’s
recommendation to deny injunctive relief is a “direct consequence”
of [these] unsupported findings of facts and, specifically, the
result of a “mistaken interpretation of the evidence admitted and
even [of] conclusions not supported by documentary evidence.” (Id.
at 4).
The Court reviews in turn the four contested factual findings.
1. Factual Finding No. 4: “‘In 2012, Innovair closed the
two stores it had in Puerto Rico.’ Testimony of Padilla
and Gómez. Day 1 Tr. at pp. 30 lines 21-23; 31 lines 1-
2; Day 3 Tr. at pp. 469 lines 3-9; 470 lines 1-6.”
(Docket No. 117 at 3).
Factual finding No. 4 is supported by the evidence, for three
reasons. First, FDSC admits that “[c]ertainly, testimony evidence
points to this conclusion” that Innovair closed its two Puerto
Rico stores in 2012. (Docket No. 118 at 6). That concession alone
undermines FDSC’s own objection.
Second, FDSC does not challenge the admissibility of the
testimonial evidence that support Factual Finding No. 4, nor does
it challenge the Magistrate López-Soler’s credibility assessment.
To the contrary, FDSC merely posits that the omission of certain
alleged documentary evidence would have negated Factual Finding
No. 4 – namely that Innovair’s 2011 balance sheet reflects no sales
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that year, which FDSC argues is evidence that Innovair ceased
operations prior to 2012. (Docket No. 113-45).
The 2011 balance sheet cited by FDSC does not contradict the
finding that Innovair closed its Puerto Rico stores in 2012. The
fact that no sales were reported in Innovair’s 2011 balance sheet
does not necessarily mean that Innovair closed its storefronts
that same year: businesses can remain open while not reporting
sales due to inventory depletion, restructuring, pending
dissolution, or other circumstances. At most, the absence of
reported sales in 2011 suggests a decline in business activity,
not the actual closure of retail operations. FDSC’s inference that
Innovair ceased all operations prior to 2012 is speculative, as
financial statements alone cannot establish the precise date a
company closed its stores. Although the documentary evidence cited
by FDSC raises a plausible inference, it does not establish a
genuine, material contradiction. Cf. Metzler Asset Mgmt. GmbH v.
Kingsley, 928 F.3d 151, 164 (1st Cir. 2019) (“[T]the fact that the
company reduced sales targets does not, necessarily, mean that
actual sales fell at a commensurate rate.”) (emphasis included in
original).
Third, and most pressing, FDSC conceded in its Answer to the
Amended Complaint and Amended Counterclaim with Preliminary
Injunction Petition that the closures of Innovair’s storefronts
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occurred “on or around January 2012.” (Docket No. 65 at 11 ¶ 10)
(“On or around January 2012, Innovair ended its operations in
Puerto Rico by closing its two retail over-the-counter stores.”).
FDSC’s answer provides a far more reliable and direct basis for to
find that Innovair, indeed, closed its two stores in 2012.
Having affirmatively pled the 2012 date, FDSC cannot now
contradict it simply because it perceives strategic advantage.
Schott Motorcycle Supply, Inc. v. Am. Honda Motor Co., 976 F.2d
58, 61 (1st Cir. 1992) (“A party’s assertion of fact in a pleading
is a judicial admission by which it normally is bound throughout
the course of the proceeding.”) (citing Bellefonte Re Ins. Co. v.
Argonaut Ins. Co., 757 F.2d 523, 528 (2d Cir. 1985)).
Upon de novo review of the evidentiary record as a whole, the
Court finds that, in 2012, Innovair closed the two stores it had
in Puerto Rico. FDSC’s objection as to Factual Finding No. 4 is
hereby OVERRULED.
2. Factual Finding No. 16: “After the meetings in Florida,
Clean Air stopped purchasing Innovair products through
FDSC and began to buy directly from Innovair. Testimony
of Caballero. Day 3 Tr. at p. 380 lines 6-17.” (Docket
No. 117 at 4).
Breaking it into parts, Factual Finding No. 16 asserts that:
(a) Clean Air previously purchased Innovair products through FDSC;
and (b) after the Florida meetings, Clean Air changed its
purchasing channel to buy products directly from Innovair, rather
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than using FDSC as an intermediary. (Id.). FDSC objects, arguing
that Clean Air never actually purchased Innovair products through
FDSC, it only intended to do so — its purchase orders were never
fulfilled by either FDSC or Innovair. FDSC further posits that,
following Innovair’s alleged interference, Clean Air’s orders were
handled directly by Innovair. In short, FDSC says that Factual
Finding No. 16 is incorrect because it assumes a prior pattern of
purchases “through FDSC” that never existed in practice. (Docket
No. 118 at 6).
On the opposing side, Innovair responds that the record still
supports the challenged finding because FDSC admits the essential
underlying fact: Clean Air ultimately purchased directly from
Innovair, not through FDSC. (Docket No. 116 at 6). Innovair
expresses that the dispute about whether Clean Air previously
purchased through FDSC is immaterial, because the key takeaway
still stands: multiple distributors existed and, hence, FDSC’s
claim of exclusivity fails. (Id. at 6).
The transcript for the third day of the evidentiary hearing,
held by Magistrate López-Soler on June 22, 2024, shows that Clean
Air was initially instructed to send purchase orders to Mr. Pedro
Joaquín Padilla García (“Mr. Padilla”), the President of FDSC.
(Docket No. 99 at 380-81). Then, during a meeting with Mr. Ernesto
García (“Mr. García”), Innovair’s Territory Manager, Clean Air was
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told to send its orders directly Innovair, rather than placing the
orders through FDSC. (Id.). Clean Air followed this instruction
and began to send its orders directly to Innovair, in contradiction
with Clean Air’s prior arrangements with FDSC. (Id.).
The transcript reflects that Clean Air initially placed
orders through FDSC and, following meetings with Innovair
representatives in Florida, began placing orders directly from
Innovair. (Id.).
Upon de novo review, the Court finds that, after the meetings
in Florida, Clean Air stopped purchasing Innovair products through
FDSC and began to buy directly from Innovair. FDSC’s objection as
to Factual Finding No. 16 is hereby OVERRULED.
3. Factual Finding No. 22: “Roger Electric used its credit
line with Euler Hermes to purchase the products from
Innovair. The transactions were made through FDSC. FDSC
would establish the sales price of the products to be
bought by Roger Electric, FDSC would complete the
purchase order for Roger Electric, and FDSC would
receive compensation from the sales made to Roger
Electric. The products were shipped directly from
Innovair to Roger Electric. Day 2 Tr. at pp. 249 lines
20-25; 250 lines 1-19; 320 lines 24-24; 321 lines 1-3.
This is called the “direct sales” model, which was
implemented to allow FDSC to complete sales of Innovair
products to its clients without having to exhaust its
line of credit, using the client’s line of credit
instead. Joint Exhibits 9, 12-13, 16; Day 1 Tr. at pp.
24 lines 11-25; 25 lines 1-17; 103 lines 12-25; 104 lines
1-23. Day 2 Tr. at pp. 319 lines 14-25; 320 lines 17-
24.” (Docket No. 117 at 5.)
FDSC’s third objection claims that Factual Finding No. 22
“incorrectly implies that FDSC’s relationship and sales to Roger
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Electric were all under the direct sales method, to force the
conclusion that FDSC was not acting as Innovair’s distributor on
those sales.” (Docket No. 118 at 8).
FDSC argues that “although the direct sales method was
implemented with Roger Electric since at least 2015 . . . , FDSC
continued selling Innovair products to Roger Electric
simultaneously, without using Euler Hermes credit line, as such
sales were directly made from FDSC’s inventory and warehouse.”
(Id. at 7) (emphasis omitted). Hence, FDSC contends that not all
sales of Innovair products to Roger Electric were made under the
“direct sales” model.
To the contrary, FDSC alleges that it sold Innovair products
to Roger Electric: (1) from its own inventory and warehouse using
Roger Electric’s credit line with FDSC; and (2) under the “direct
sales” model using Euler Hermes, at least when FDSC lacked
inventory or credit capacity for larger transactions. (Id.). In
addition, FDSC further posits that “the [Innovair] products were
not always shipped directly from Innovair to Roger Electric,” but
rather “[o]ftentimes, FDSC would store and hold Roger’s products
at FDSC’s warehouse, for their subsequent transportation to
Roger.” (Id.).
The transcript demonstrates that – at times - FDSC sold
Innovair products from its own warehouse to Roger Electric, and
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invoiced Roger Electric directly for these products. Consider, for
instance, this snippet of FDSC’s responses from the transcript:
Q: Where did the first shipment of Innovair products
came [sic] from?
A: From our warehouse.
[. . .]
Q: Did you sell those products to Roger Electric?
A: Yes, sir.
(Docket No. 97 at 115-16). This confirms that not all transactions
followed the “direct sales” model. However, FDSC continued selling
Innovair products directly to Roger Electric by using its own
inventory, even after the implementation of the “direct sales”
model, which means that the direct sales model coexisted with -
and did not entirely replace - traditional distributor sales. (Id.
at 116-17, 121).
The testimony clarifies that not all of Roger Electric’s
purchases of Innovair products followed the “direct sales” model.
(Docket No. 98 at 250). As stated, “sometimes we [FDSC] received
the [Innovair] products and we [FDSC] store it for them [Roger
Electric],” and “some others they [Roger Electric] receive them
[the Innovair products] direct[ly]” from FDSC - showing the
coexistence of sales from FDSC’s own inventory and of sales from
the “direct sales” model. (Id.). Shipments under the direct sales
model were sometimes direct from Innovair to Roger Electric, but
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other times routed through FDSC’s warehouse1 — demonstrating
variation:
Q: When you take for instance Roger Electric would purchase
air conditioning through you, right?
A: Yes.
[. . . ]
A: Sometimes we received the products and we [FDSC] store[d]
it for them.
[. . . ]
Q: So there were times where Innovair would send directly to
Roger [Electric], both air conditioning and parts.
A: Yes, correct.
Q: Okay and is that also true for other clients, for other,
for example for Clean Air or for other clients?
A: Yes, ma’am.
(Id. at 249-50).
Innovair shipments did not always go directly to Roger
Electric; FDSC sometimes took physical possession of them and
handled the delivery to Roger Electric. Compensation to FDSC for
these transactions varied depending on whether the sale was made
from its inventory or through the direct sales model. Accordingly,
there were two invoicing methods — one for direct sales, and one
for FDSC’s own inventory sales. (Docket No. 97 at 141-42).
1 FDSC submitted Defendant’s Exhibits 11A-11J, 12A-12B, and 30 which, on their
face, suggest that FDSC and Roger Electric conducted business dealings directly
with each other – without intermediaries – as early as February 2015 and as
late as November 2020, after the implementation of the “direct sales” model.
(Docket Nos. 113-11; 113-12; 113-30).
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As worded, Factual Finding No. 22 overstates the uniformity
of the “direct sales” model. The record shows that, while Roger
Electric did purchases under the “direct sales” model, FDSC also
sold Innovair products directly to Roger Electric from its own
inventory. In some cases, Innovair products that were purchased by
Roger Electric were stored and delivered by FDSC. (Id.).
Innovair’s Response correctly states that the “direct sales”
model was adopted at a later time and was distinct from FDSC’s
earlier distributorship role. (Docket No. 126 at 7-8). The Report
and Recommendation indeed recognizes this distinction. However —
as the transcript shows — even after the implementation of the
“direct sales” model, FDSC continued to implement at least some
non-direct sales by handling shipments and logistics itself. Thus,
while both Innovair’s Response and Factual Finding No. 22 are
correct in emphasizing and summarizing the “direct sales”
structure, the language of the contested finding does not
explicitly limit the extent of “direct sales” model and, thus – as
worded – Factual Finding No. 22 risks being read as inaccurately
describing all dealings with Roger Electric. It is the judgment of
this Court that further clarification is warranted.
Therefore, the Court MODIFIES the Report and Recommendation’s
Factual Finding No. 22 to the following: Roger Electric at times
purchased Innovair products pursuant to a “direct sales” model
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under which Roger Electric utilized its credit line with Euler
Hermes. In those transactions, FDSC acted as an intermediary by
establishing pricing, preparing purchase orders, and receiving
compensation from Innovair. Products were generally shipped
directly from Innovair to Roger Electric. On some occasions,
shipments were routed through FDSC’s warehouse for storage and
subsequent delivery. Separately, FDSC also sold Innovair products
to Roger Electric from its own inventory, extending credit directly
and invoicing Roger Electric accordingly. The direct sales model
was implemented primarily to allow FDSC to facilitate larger
transactions without exhausting its own line of credit.
Factual Finding No. 26: “On June 1, 2022, FDSC sent a proposed
distribution agreement to Innovair. Joint Exhibit 8; Docket No. 65
at ¶ 36.” (Docket No. 117 at 5.)
FDSC objects to Factual Finding No. 26, indicating that “FDSC
did not send a proposed distribution agreement; it sent a proposal,
as the document itself shows. . . . It was sent at the request of
Innovair’s new owners . . . after [they] unilaterally attempted to
change payment terms for FDSC after 10 years of distribution
relationship.” (Docket No. 118 at 8) (emphasis omitted). “FDSC
rejected to accept such proposal as it impaired its distribution
rights.” (Id.) (emphasis omitted).
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Although the Court acknowledges FDSC’s desire to clarify the
circumstances surrounding the transmission of the proposed
agreement, Factual Finding No. 26 is supported by the evidentiary
record and is complete and accurate.
As a matter of fact, in its own Answer to Complaint, FDSC
indicates that “in an attempt to seek an amicable solution and
avoid litigation, on June 1st, 2022, FDSC sent Innovair a proposed
distribution agreement to put in writing what the parties’
relationship had been until then and to continue to abide by the
same.” (Docket No. 65 ¶ 36). In its own words, FDSC characterizes
the document as “a proposed distribution agreement.” (Id.). Having
affirmatively pled the existence of “a proposed distribution
agreement,” FDSC may not contradict its own words. Schott
Motorcycle Supply, 976 F.2d at 61.
Upon de novo review, the Court finds that, on June 1, 2022,
FDSC sent a proposed distribution agreement to Innovair. FDSC’s
objection as to Factual Finding No. 26 is hereby OVERRULED.
B. Preliminary Injunction under Law 75
FDSC seeks a preliminary injunction, pursuant to Law 75. Such
injunctive relief would entail this Court ordering Innovair: (1)
to release and deliver all pending purchase orders placed and paid
by FDSC, and to serve all other purchases that could be placed by
FDSC; (2) refrain from selling directly in Puerto Rico, including
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to Roger Electric; (3) refrain from appointing a different
distributor in Puerto Rico; and (4) refrain from changing any of
the terms and conditions of the exclusive agreement between
Innovair and FDSC. (Docket Nos. 65 at 18; 65-1 at 15). In its
Objection, FDSC argues that the Court should grant the sought
injunctive relief because “by failing to recommend the requested
injunctive relief” the Defendant’s “sales and client relationships
continue to be threatened by Innovair’s unilateral attempts to
directly approach and sell to those clients without FDSC’s
intervention.” (Docket No. 118 at 4).
“Law 75 governs the business relationship between principals
and the locally appointed distributors that market their
products.” Medina & Medina Inc. v. Hormel Foods Corp., 840 F.3d
26, 41 (1st Cir. 2016) (quoting Irvine v. Murad Skin Rsch. Labs.,
194 F.3d 313, 317 (1st Cir. 1999)) (citation modified).
Specifically, Law 75 establishes that, once a distributor has
created a favorable market for the principal’s products or service,
the principal is prohibited from either terminating or impairing
such relationship, except for “just cause.” P.R. Laws Ann. tit. 10
§ 278a-b.
The statute was enacted to avoid “the inequity of arbitrary
termination of distribution relationships once the designated
dealer had successfully developed a local market for the
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principal’s products and/or services.” Medina & Medina, 840 F.3d
at 41 (quoting Irvine, 194 F.3d at 317); see also Twin Cnty.
Grocers, Inc. v. Mendez & Co., Inc., 81 F. Supp. 2d 276, 283
(D.P.R. 1999) (“The [Puerto Rico] legislature had observed that
dealers in Puerto Rico were particularly vulnerable to summary
termination once they had established a favorable market for a
principal’s product.”) (citing Draft-Line Corp. v. Hon Co., 781 F.
Supp. 841, 844 (D.P.R. 1991)). In that vein, Law 75 prohibits
principals from engaging in conduct that “directly or indirectly”
impairs - or is detrimental to - the established relationship
between the principal and the distributor. P.R. Laws Ann. tit. 10
§ 278b-1; Irvine, 194 F.3d at 318 (explaining the scope of Section
278b-1).
In any legal action in which a distributor alleges that a
principal has terminated or impaired their business relationship,
Law 75 authorizes the issuance of a preliminary injunction by which
the Court may order the involved parties to continue fulfilling
the obligations of their distribution agreement, pending
litigation. P.R. Laws Ann. tit. 10 § 278b-1; see Re-Ace, Inc. v.
Wheeled Coach Indus., 363 F.3d 51, 54 (1st Cir. 2004). In these
cases, the First Circuit looks to the following test:
The framework for considering whether to grant or deny
a preliminary injunction is well settled: An inquiring
court [1] must gauge the movant’s likelihood of success
on the merits; [2] must evaluate whether and to what
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extent the movant will suffer irreparable harm if
injunctive relief is withheld; [3] must calibrate the
balance of hardships as between the parties; and [4]
must consider the effect, if any, that the issuance of
an injunction (or the withholding of one) will have on
the public interest.
Bayley’s Campground, Inc. v. Mills, 985 F.3d 153, 158 (1st
Cir. 2021) (quoting Akebia Therapeutics, Inc. v. Azar, 976 F.3d
86, 92 (1st Cir. 2020) (internal quotations omitted). In evaluating
requests for preliminary injunctive relief under Law 75, courts
consider the traditional four-factor test, while also giving
effect to the statute’s policy favoring the continuation of
dealership relationships pending adjudication.
In addition to this test, Law 75 sets a framework of
additional considerations for the Court: In the exercise of
balancing the four relevant factors for the issuance of a
preliminary injunction, Law 75 places a thumb on the scale, as to
give certain factor more weight and tip the balance in favor of
granting the sought injunctive relief.2 Namely, the preliminary
injunction under this statutory provision “is not tied to a showing
of irreparable injury or to probability of success in the case on
2 When sitting in diversity jurisdiction, federal district courts apply federal
procedural law, and the substantive law of the state or territory where it sits.
Erie R. Co. v. Tompkins, 304 U.S. 64, 69 (1938). Nonetheless, “[t]he question
whether a preliminary injunction should be granted is generally one of federal
law even in diversity actions, though state law issues are sometimes relevant
to the decision to grant or deny.” Revolutions Med. Corp. v. Med. Inv. Grp.
LLC, No. 12-CV-10753, 2013 WL 1087693, at *5 (D. Mass. Mar. 13, 2013) (internal
citations omitted).
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the merits, but rather to the policies of the Act in promoting the
continuation of dealership agreements and the strict adherence to
the provisions of such agreements.” Waterproofing Sys. v. Hydro-
Stop, Inc., 440 F.3d 24, 33 (1st Cir. 2006) (quoting De Moss v.
Kelly Servs., Inc., 493 F.2d 1012, 1015 (1st Cir. 1974)). This
charges the Court with “look[ing] both to the parties’ ‘interests’
and to the Act’s ‘public policy.’ The basic ‘public policy’ of the
Act is to prevent dealer termination without ‘just cause.’ The
strength of the parties’ interests also may depend upon the
likelihood that ‘just cause’ will be found.” Luis Rosario, Inc. v.
Amana Refrigeration, Inc., 733 F.2d 172, 173 (1st Cir. 1984)
(internal citations omitted). Despite these modifications,
district courts may still consider the movant’s likelihood of
success on the merits and whether it would suffer irreparable harm.
(Id.).
With this in mind, the Court now examines these relevant
factors and addresses FDSC’s objections to Magistrate Soler-
López’s Report and Recommendation denying injunctive relief.
1. Likelihood of Success on the Merits
Pursuant to Law 75, a preliminary injunction may be issued
when the movant asserts a claim of termination or a claim of
impairment. P.R. Laws Ann. tit. 10 § 278b-1. At this juncture, the
only claim to consider is that of impairment, given that the Court
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has already dismissed FDSC’s cause of action for termination. See
(Docket No. 116 at 2). Hence, the likelihood of success on the
merits is judged in accordance with FDSC’s claim of impairment.
Pursuant Law 75, there is a “rebuttable presumption of an
impairment” when a principal “establishes a distribution
relationship with one or more additional dealers for the area of
Puerto Rico . . . in conflict with the contract existing between
the parties.” Medina & Medina Inc., 840 F.3d at 41 (quoting P.R.
Laws Ann. tit. 10 § 278b-1).
Whether FDSC is likely to establish a claim of impairment
depends on the specific terms of its dealership agreement with
Innovair – mainly, on whether the parties’ dealership agreement
was exclusive or not. See, e.g., Irvine, 194 F.3d at 318 (“The
protection afforded to” distributors under Law 75 “is
circumscribed by those rights acquired under the agreement
regulating their business relationship.”); Vulcan Tools of P.R. v.
Makita USA, Inc., 23 F.3d 564, 569 (1st Cir. 1994) (“The question
whether there has been a ‘detriment’ to the existing relationship
between supplier and dealer is just another way of asking whether
the terms of the contract existing between the parties have been
impaired.”); Nike Int’l, Ltd. v. Athletic Sales, Inc., 689 F. Supp.
1235, 1238 (D.P.R. 1988) (Law 75 should not be interpreted to
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create a “safe-haven for dealers to avoid the express terms of the
contracts to which they willingly subscribed.”).
Therefore, prior to assessing FDSC’s likelihood to succeed on
its claim of impairment pursuant to Law 75, the Court must address
the preliminary matter of whether the dealership agreement in
question was exclusive or not.
a. FDSC and Innovair had a non-exclusive dealership
agreement
In 2012, the parties verbally agreed for FDSC to distribute
Innovair products in Puerto Rico, (Docket Nos. 97 at 44-47), yet
a written distribution agreement was never executed, (Docket No.
79 at 3 ¶ vii). FDSC sustains that the verbal agreement set forth
exclusivity, whereas Innovair disagrees. (Docket Nos. 62 at 3 ¶
12; 65 at 11 ¶ 12). To determine whether the parties’ verbal
agreement entailed exclusivity or not, Court examines the parties’
course of dealings. José Santiago, Inc. v. Smithfield Packaged
Meats Corp., 66 F.4th 329, 339 (1st Cir. 2021).
To examine the parties’ course of dealings, the Court will
evaluate the unobjected facts, which establish the following. FDSC
began distributing Innovair products in 2012, undertaking
activities that are typically associated with a Law 75 distributor.
(Docket Nos. 62 at 3 ¶ 12; 65 at 11 ¶¶ 12-13); P.R. Laws Ann. tit.
10 § 278b (A dealer’s contract is defined as a “relationship
established between a dealer and a principal or grantor
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[irrespective of the relationship], the former actually and
effectively takes charge of the distribution of a merchandise, or
of the rendering of a service, by concession or franchise, on the
market of Puerto Rico.”); Re-Ace, Inc., 363 F.3d at 55 (quoting
Triangle Trading Co. v. Robroy Indus., 200 F.3d 1, 4-5 (1st Cir.
1999)) (“[T]he [C]ourt [has] derived the following characteristics
of a dealership: promotion of the product, keeping an inventory,
fixing prices, delivery and billing responsibilities, authority to
extend credit, advertising campaigns, assumption of risk,
purchasing the product, maintaining facilities, and offering
product-related services to clients.”).
From 2016 until 2022, at least one other air conditioning
company — Clean Air — began to purchase products directly from
Innovair and sell those products in Puerto Rico, without the
intervention of FDSC. (Docket No. 98 at 278-87). Since 2016, FDSC
knew that Clean Air was purchasing products from Innovair and
selling those products in Puerto Rico. (Id.). Despite an initial
protest, FDSC took no further action to halt Clean Air’s sale of
Innovair products. (Id.). This matter became more contentious with
the implementation of the “direct sales” model, by which Innovair
sells its products in the Puerto Rico market – particularly as to
Roger Electric in 2022 - without using FDSC as its exclusive
dealer. (Docket Nos. 62 at 5; 65 at 18 ¶ 54). Subsequently,
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Innovair filed an Amended Complaint seeking declaratory judgment
from this Court, establishing that FDSC is not an exclusive
distributor under Law 75. (Docket No. 62 at 2 ¶ 6). FDSC filed a
counterclaim to vindicate its status as an exclusive dealer.
(Docket No. 65 at 17-18 ¶¶ 50-57).
As the First Circuit has made clear, “[e]xclusivity is
generally apparent either from the contract or from the
arrangements agreed upon between the parties.” IOM Corp. v. Brown
Forman Corp., 627 F.3d 440, 448 (1st Cir. 2010) (quoting Orba,
Inc. v. MBR Indus., Inc., 49 F. Supp. 2d 67, 71 (D.P.R. 1999))
(internal quotations omitted). Moreover, exclusivity “is met where
neither the principal merchant nor third parties are allowed to
sell the [principal’s] product in the same territory or market in
which the sales representative operates.” Id. (citing Cruz Marcano
v. Sánchez Tarazona, 172 D.P.R. 526, 537–38 (P.R. 2007).3
Upon de novo review of the record, the Court determines that
FDSC did not enjoy an exclusive dealership for three reasons.
3 The Court notes that the cases cited in this paragraph discuss the issue of
exclusivity as it pertains to Puerto Rico’s Sales Representative Act, P.R. Laws.
Ann. tit. 10 §§ 279a-279h, also known as “Law 21.” Yet, as established by the
First Circuit, Law 21 “is modeled on [Law 75], which provides similar
protections to distributors.” Rafael Rodríguez Barril, Inc. v. Conbraco Indus.,
Inc., 619 F.3d 90, 93–94 (1st Cir. 2010). “In enacting Law 21, the Puerto Rico
[L]egislature explained that the statute purported ‘to protect sales
representatives and other local agents who fell short of the requirements for
‘dealership’ status under Law 75.’” IOM Corp., 627 F.3d at 445 n.3 (citing Re–
Ace, Inc., 363 F.3d at 57).
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First, the fact that FDSC was, between 2012 to 2016, the sole
seller of Innovair products is not enough to establish exclusivity.
See Valentín v. White Rose, Inc., 993 F. Supp. 2d 77, 86 (D.P.R.
2014) (“[T]here is a difference between being the only sales
representative selling certain products in one entire market
without an intention for exclusivity, and being the exclusive sales
representative of those same products in that same market.”).
Second, Clean Air’s sales of Innovair products in Puerto Rico
fall squarely within the type of conduct that violates exclusivity,
because such sales encroach upon the very market territory in which
FDSC operated. As noted in the Report and Recommendation, “FDSC
argues that a distinction should be drawn, because Clean Air was
a retailer of air conditioning units, not a wholesaler like FDSC.”
(Docket 117 at 9 n.2). Yet, this is “of no consequence,” given
that the central issue as to “exclusivity is that Innovair was
selling directly in Puerto Rico,” rather than selling through FDSC.
(Id.).
To boot, the relevant legal inquiry is not based on the nature
of the intermediary (retailer or wholesaler), but rather on whether
the principal — in this case, Innovair — engaged in “direct sales”
within the same market that was allegedly granted as exclusive to
FDSC – in this case, Puerto Rico. Distribuidora VW, Inc. v. Old
Fashioned Foods, Inc., 84 F. Supp. 3d 82, 88 (D.P.R. 2014) (“[T]he
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Supreme Court of Puerto Rico has held that exclusivity may be shown
if the terms of the sales representation agreement restrict either
the principal or third parties from selling ‘the product in the
same territory or market in which the sales representative
operates.’”) (quoting Cruz Marcano, 172 D.P.R. at 548). Even
assuming arguendo that exclusivity existed at the inception of the
parties’ relationship, any such exclusivity concluded no later
than 2016, when Clean Air began distributing Innovair products in
Puerto Rico with FDSC’s knowledge.
Third, albeit raising initial objections to Clean Air’s
distribution of Innovair products in Puerto Rico and Innovair’s
implementation of the “direct sales” model, FDSC failed to promptly
take appropriate actions to prevent these encroachments into its
allegedly protected market. See Irvine, 194 F.3d at 318 (“[O]nce
put on notice that its products are reaching an area of limited
distribution rights a principal [, in this case the distributor,]
has the obligation to take prompt positive action to curtail the
practice.”). FDSC had “affirmative duty to ensure that the direct
sales would cease and avoid further interference with the Puerto
Rico market” – and yet, beyond sending a letter, FDSC took no
concrete action to halt encroachment into its purportedly
protected market. Id.
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b. FDSC is not likely to succeed on the merits of its
claim of impairment under Law 75
It has been established that the dealership agreement between
FDSC and Innovair was not exclusive. Nevertheless, Law 75 protects
both exclusive and non-exclusive agreements. Medina & Medina Inc.,
840 F.3d at 41-42 (“Law 75 imposes no prohibition upon the
principal of selling or establishing parallel distributorship
agreements if he reserved the right to do so” under the obligation
“to deal in good faith with his contracting party and not to impair
the established relationship, whatever the relationship is.”)
(internal citations omitted).
No later than May 24, 2022, FDSC learned of Innovair’s intent
to deal directly with Roger Electric. See (Docket Nos. 65 at 15
¶ 35). On June 21, 2022, FDSC sent Innovair a letter to cease and
desist the alleged impairment of its distribution of Innovair
products in Puerto Rico, and warning the filing of a legal action
under Law 75. (Docket No. 70-25). In response, Innovair
unequivocally informed FDSC that it intended to continue selling
its products directly to Roger Electric, rather than through FDSC.
(Docket No. 70-24). Innovair also informed to FDSC that Innovair
would pay FDSC a fixed commission of three percent on all Roger
Electric orders. Id. Innovair continued selling its products
directly to Roger Electric, and FDSC did not sue. (Docket No. 98
at 291-92). It was not until March 21, 2023, that FDSC moved for
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injunctive relief - yet only in response to Innovair’s filing of
a legal action against FDSC. (Id. at 292-93).
Although the “direct sales model” did not displace entirely
FDSC’s dealership, Roger Electric – at least to some extent –
assumed certain of the responsibilities previously entrusted upon
FDSC, including keeping inventory, delivering Innovair products,
extending credit, and assuming the financial risks of sales. (Id.
at 321-22). Despite the “direct sales” model, FDSC continued to
develop the market for Innovair products through advertisements,
promotions, and the development of a client base; FDSC continued
providing services and warranties over Innovair products sold to
clients; FDSC retained control to fix its profit margins, by
setting the price for each Innovair product to be purchased by
Roger Electric and earning the difference between Innovair’s price
and the amounts paid by Roger Electric for each product; and FDSC
participated in the coordination of purchase orders and payments
from Roger Electric to Innovair. (Docket No. 97 at 86-88, 97-98,
103-05, 118-19, 140-41). In so doing, FDSC continued to act as a
distributor of Innovair products, within the meaning of Law 75.
See (id.)
The evidentiary record establishes that FDSC ultimately
acquiesced to the implementation of the direct sales model.
Notwithstanding its initial opposition, FDSC entered into the
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“direct sales” model out of financial necessity, allowing Innovair
and Roger Electiry to directly handle at least some of the sales
logistics and credit arrangements, while compensating FDSC. To
wit, the development of the “direct sales” model was triggered, at
least in part, by Roger Electric’s large-volume orders and FDSC’s
limited credit capacity, as the record shows. (Id. at 23-25).
Indeed, FDSC’s President Mr. Padilla testified that this model
actually benefitted FDSC because it relieved the company from
having to extend its credit while continuing to receive
compensation for the sales:
A: [O]ur credit line was very short and there was [sic] a lot
of sales with big customer, big amount of money and all
that, so we cannot cover it. So, in the conversation with
Mr. Julio Gomez, his office in Miami, he offered me, says,
“why we don’t go and open accounts for all those customers
and open credit lines, using them the credit lines instead
of your credit line? So you have yours open for some other
stuff and we can sell them, you know, direct through here.
You put the price, you put everything and we just pay you
back your money or difference?”
(Id. at 25). Mr. Padilla’s remarks clarify the underlying motive
for FDSC to adopt the “direct sales” model: mainly, that FDSC’s
credit line was exhausted or insufficient to finance large orders.
See (id. at 23-25). When Innovair proposed a workaround to FDSC’s
problem — to use its own credit line to handle the sales directly
to customers – FDSC acquiesced. (Id.).
Under the “direct sales” model, FDSC retained the ability to
set the prices, handled quotations and customer contact, and
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received compensation through Innovair crediting their open
account – hence confirming FDSC’s participation in such a model.
See (id.). The direct sales model did not directly result in FDSC’s
loss of agency over its business dealings – or even displaced FDSC
from the distribution of Innovair product - but, to the contrary,
FDSC received certain benefits. Specifically, it “direct sales”
model relieved FDSC from having to extend its own credit, while
still allowing it to profit. See (id. at 26) (“Both parties benefit
[sic]. Myself benefits. . . . It’s a combination of business
between both parties by mutual agreement”). Mr. Padilla further
explained that, under the “direct sales” model, FDSC continued
providing service that the customers relied on. See (id. at 27,
29).
Even though FDSC was not invoicing customers directly, FDSC
remained the face of the Innovair brand — managing customer
relations, service, and warranty obligations. (Id.). This further
supports the position that the “direct sales” model did not replace
FDSC’s role but rather restructured it in a format that would be
more financially sustainable for FDSC. (Id. at 91) (indicating
that FDSC’s responsibilities as a distributor “didn’t change”
after the direct sales method was implemented).
Ultimately, the transcript supports the finding that the
“direct sales” model was developed out of necessity due to FDSC’s
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limited credit capacity, and with FDSC’s knowledge and
acquiescence. See (id.). As Mr. Padilla testified, FDSC’s “credit
line was very short . . . so we [could not] cover it,” which was
why Innovair proposed the “direct sales” business model while
allowing FDSC to “put the price” and receive “the profit in our
open account.” (Id. at 25–26). Far from being imposed unilaterally,
this arrangement was “a combination of business between both
parties by mutual agreement.” (Id. at 26).
Taken together, foregoing analysis weights against FDSC’s
claim of impairment, and the issuance of a preliminary injunction.
As aforementioned, “the plaintiff's likelihood of success on the
merits in a Law 75 action bears heavily on the weight of the
parties' interests and whether an injunction would serve the
purposes of Law 75.” José Santiago, Inc., 66 F.4th at 347–48; see
also Pan Am. Data Comput. Corp. v. Data Gen. Corp., 652 F.2d 215,
217 (1st Cir. 1981) (“While the statute [Law 75] does not require
a finding of likelihood of success as a prerequisite to issuance
of an injunction, the [C]ourt’s view of the merits would certainly
affect its judgment of the weight of the parties’ interests and of
the injunction’s effect on the statutory policies.”). In light of
the foregoing analysis, this factor weights against the issuance
of a preliminary injunction.
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2. Irreparable Harm
“To establish irreparable harm there must be an actual,
viable, presently existing threat of serious harm.” Sierra Club v.
Larson, 769 F. Supp. 420, 422 (D. Mass. 1991). “Only a viable
threat of serious harm which cannot be undone authorizes exercise
of a court’s equitable power to enjoin before the merits are fully
determined.” Mass. Coal. of Citizens with Disabilities v. Civ.
Def. Agency & Off. of Emergency Preparedness, 649 F.2d 71, 74 (1st
Cir. 1981). Accordingly, “[p]laintiffs must establish injury that
is not remote or speculative, but is actual and imminent.” Sierra
Club, 769 F. Supp. at 422; see United States v. W. T. Grant Co.,
345 U.S. 629, 633 (1953).
It remains black-letter law that, where monetary damages are
available, courts should be wary of issuing a preliminary
injunction. See NACM-New England, Inc. v. Nat’l Ass’n of Credit
Mgmt., Inc., 927 F.3d 1, 5 (1st Cir. 2019) (“The general rule . .
. is that ‘traditional economic damages can be remedied by
compensatory awards, and thus do not rise to the level of being
irreparable.’) (quoting Vaquería Tres Monjitas, Inc. v. Irizarry,
587 F.3d 464, 485 (1st Cir. 2009)); Charlesbank Equity Fund II v.
Blinds To Go, Inc., 370 F.3d 151, 162 (1st Cir. 2004) (where “an
award of pecuniary damages” would make the plaintiffs whole, this
“legal remedy is adequate” and a preliminary injunction is
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inappropriate.); Sierra Club, 769 F. Supp. at 422 (“Irreparable
injury is that injury for which money damages are not adequate
compensation.”).
Here, FDSC allegedly suffered the loss of sales and profits
purportedly due to Innovair’s putative breach of the parties’
exclusivity agreement. Without ruling on the merits of this claim
- and assuming arguendo that such may be true – the adequate remedy
to make FDSC whole for the loss of sales and profits would be
monetary compensation, not injunctive relief. Ocean Spray
Cranberries, Inc. v. Pepsico, Inc., 160 F.3d 58, 61 (1st Cir. 1998)
(if money damages will adequately redress the harm, then injury is
not considered irreparable and injunctive relief is not
warranted). To this point, FDSC acknowledges as much, stating that
“the R&R correctly concludes that some of the damages that FDSC
may suffer can be economically compensated; FDSC does not dispute
that.” (Docket No. 118 at 20).
In addition to the loss of sales and profits, FDSC further
argues that it has suffered reputational harm which “although
economic in nature” is “hardly quantifiable.” (Id. at 20). Even
accepting that reputational harm may, in appropriate
circumstances, constitute irreparable injury, the record does not
support such a finding here. In the context of Law 75, “[e]xamples
of irreparable injuries include . . . harm to goodwill or
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reputation.” Dunkin’ Donuts Franchised Rests. LLC v. Wometco Donas
Inc., 53 F. Supp. 3d 221, 230 (D. Mass. 2014). The First Circuit
has likewise recognized that “injury to goodwill and reputation is
not easily measured or fully compensable in damages. Accordingly,
this kind of harm is often held to be irreparable.” Ross-Simons of
Warwick, Inc. v. Baccarat, Inc., 102 F.3d 12, 20 (1st Cir. 1996).
This principle applies with particular force when the alleged
reputational harm is likely to cause customers to turn to
competitors. Id. However, courts are not obligated to mechanically
find irreparable whenever reputational harm is alleged. Rather,
such claims must be evaluated “on a sliding scale, working in
conjunction with a moving party’s likelihood of success on the
merits, such that the strength of the showing necessary on
irreparable harm depends in part on the degree of likelihood of
success shown.” Braintree Labs., Inc. v. Citigroup Glob. Mkts.
Inc., 622 F.3d 36, 42-43 (1st Cir. 2010) (internal citations
omitted).
FDSC claims that, absent injunctive relief, it would suffer
reputational harm because it would be unable to provide warranties
for Innovair products. The evidentiary record, however, does not
support this contention. While FDSC testified that it provides
warranties for Innovair products sold directly by Innovair to Roger
Electric under the “direct sales” model (Docket Nos. 97 at 91–92;
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98 at 178–82), Innovair testified that such warranties are
guaranteed by Roger Electric (Docket No. 104-2 at 111). In any
event, the record establishes that the direct sales model did not
prevent FDSC from purchasing Innovair products directly from
Innovair, including parts and accessories needed to service
outstanding warranties. See id. Moreover, FDSC is not prevented
from purchasing and distributing Innovair products, particularly
given Innovair’s expressed willingness and capacity to fulfill
purchase orders from FDSC. (Docket No. 104-2 at 60). Because the
record reflects a continuing potential for business between the
parties, speculative assertions to the contrary do not establish
irreparable harm. In re Rare Coin Galleries of Am., Inc., 862 F.2d
896, 902 (1st Cir. 1988) (“Speculation or unsubstantiated fears of
what may happen in the future cannot provide the basis for a
preliminary injunction.”).
Equally significant to the irreparable-harm analysis is
FDSC’s delay in seeking injunctive relief. FDSC waited
approximately ten months after the implementation of the
challenged conduct before requesting a preliminary injunction.
Such delay undermines any claim of immediacy or urgency and weighs
heavily against a finding of irreparable harm, particularly where
injunctive relief was sought only after Innovair initiated this
litigation. See Systema de P.R., Inc. v. Interface Int’l, Inc.,
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123 P.R.D. 379 (P.R. 1989) (denying injunctive relief under Law 75
after a fifteen-month delay); Freightliner, LLC v. P.R. Truck
Sales, Inc., 399 F. Supp. 2d 57, 62 n.2 (D.P.R. 2005) (four-month
delay “militates against a finding of irreparable harm”); Oliva v.
Ramirez, No. 07-CV-1569, 2007 WL 2436305, at *3 (D.P.R. Aug. 21,
2007) (delay “undercuts the sense of urgency that ordinarily
accompanies a motion for preliminary relief and suggests that there
is, in fact, no irreparable injury”) (quoting Le Sportsac, Inc. v.
Dockside Rsch., Inc., 478 F. Supp. 602, 609 (S.D.N.Y. 1979)).
As such, FDSC has fallen short of demonstrating the existence
of an irreparable injury. See González–Droz v. González–Colón, 573
F.3d 75, 79 (1st Cir. 2009) (movant bears the burden of
demonstrating irreparable harm). Considering that a showing of
irreparable injury is “a necessary threshold requirement for the
issuance of a preliminary injunction,” Charlesbank Equity Fund II,
370 F.3d at 155, this factor weighs against issuance of a
preliminary injunction. Accordingly, because FDSC has failed to
demonstrate a concrete, imminent, and non-compensable injury
attributable to Innovair’s conduct, it has not satisfied the
irreparable-harm requirement for preliminary injunctive relief.
3. Balance of Equities
The balance of equities concerns “the hardship to the movant
if an injunction [is] not issue[d] as contrasted with the hardship
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to the nonmovant if it does.” Rosario-Urdaz v. Rivera-Hernandez,
350 F.3d 219, 221 (1st Cir. 2003). “The crux of the balance of
equities inquiry is whether ‘the balance of equities so favors the
movant that justice requires the court to intervene to preserve
the status quo until the merits are determined.’” Grant v. Trial
Ct., 784 F. Supp. 3d 475, 490 (D. Mass. 2025) (quoting Dataphase
Sys., Inc. v. C L Sys., Inc. 640 F.2d 109, 113 (8th Cir. 1981)).
Through the issuance of a preliminary injunction, FDSC seeks
to be able to set the prices of Innovair products sold directly by
Innovair to Roger Electric – thus allowing Innovair to earn a
profit margin larger than the three percent status quo. If a
preliminary injunction is granted and FDSC increases the price of
Innovair products sold to Roger Electric, FDSC would effectively
gain control over Innovair’s ability to compete with other air-
conditioning brands available to Roger Electric: By raising prices
to a level that makes it impractical for Roger Electric to purchase
and distribute Innovair products, FDSC could indirectly force
exclusivity between FDSC and Innovair. In other words, FDSC could
inflate Roger Electric’s purchase price of Innovair products to
the point where Innovair’s only viable option would be to sell its
products exclusively to FDSC. See Systema de P.R., 123 D.P.R. at
388 (reversing a lower Court’s issuance of a preliminary injunction
because Law 75’s provision of injunctive relief should not be used
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to mechanically or automatically reinstate dealership agreements,
nor should it be exercised to award “an exclusivity” that the
parties “never had”).
This Court has already rejected FDSC’s claim of exclusivity,
and “Law 75 does not operate to convert non-exclusive distribution
contracts into exclusive distribution contracts.” Borschow Hosp.
& Med. Supplies, Inc. v. Cesar Castillo, 96 F.3d 10, 14 (1st Cir.
1996); Vulcan Tools, 23 F.3d at 569. Allowing FDSC to control
prices for Innovair products would restrict Innovair’s competitive
abilities and may even impose an exclusivity that FDSC never
enjoyed in the first place. As such, the balance of equities weight
towards the denial of the sought preliminary injunction.
4. Public Interest
The enactment of Law 75 by Puerto Rico’s Legislature reveals
that the public has an interest in “protect[ing] Puerto Rico
dealers from the harm caused when a supplier arbitrarily terminates
a distributorship once the dealer has created a favorable market
for the supplier's products, ‘thus frustrating the legitimate
expectations and interests of those who so efficiently carried out
their responsibilities.’” R.W. Int’l Corp. v. Welch Food, 13 F.3d
478, 482 (1st Cir. 1994) (quoting Medina & Medina, 858 F.2d at
820).
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Taking this into account, the following remains undisputed.
FDSC promoted Innovair’s brand and obtained clientele for Innovair
products in Puerto Rico. (Docket No. 65 at 12 ¶ 17). Roger Electric
was a client of FDSC and FDSC’s sales of Innovair products to Roger
Electric added up to fifty percent of FDSC’s total annual sales.
(Id. at 13 ¶ 21). Through the “direct sales” model, Innovair
changed FDSC’s compensation structure by selling directly to Roger
Electric and, thus, bypassing FDSC as an intermediary. See (id. at
16 ¶ 46).
Whereas Law 75 intends to protect FDSC’s legitimate business
interest upon creating a favorable market for Innovair products,
it is not less true that FDSC is not likely to establish an
exclusive right to distribute Innovair products in Puerto Rico.
See Medina & Medina, 840 F.3d at 41-42. Because issuing the
requested injunctive relief would allow FDSC to control the prices
offered to Roger Electric and, thus, limit Innovair’s ability to
compete for Roger Electric’s business and may even force an
exclusivity that did not exist in the first place – hence,
contradicting Law 75’s legislative intent and contravening the
public interest. Consequently, this factor weighs against granting
injunctive relief.
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IV. CONCLUSION
For the reasons set forth above, the Court ADOPTS WITH
MODIFICATIONS Magistrate López-Soler’s Report and Recommendation.
FDSC’s request for injunctive relief is DENIED.
IT IS SO ORDERED.
In San Juan, Puerto Rico, on January 16, 2026.
/s/ Gina R. Méndez-Miró
GINA R. MÉNDEZ-MIRÓ
UNITED STATES DISTRICT JUDGE
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